No wonder the January sale at Harrods, the London department store, is turning into such a huge success. And no wonder American accents are dominant in the happy throng. Four years ago you would have had to pay $2.30 for a British pound. Currently, after a long and steady slide, it's been trading at precisely half that price.
It's not only the pound. Four years ago an American dollar would have bought you 4.85 French francs. In the past few days the rate has been up around 9.70. Even the West German mark -- one of the world's most solid currencies, in a country where the inflation rate is hardly more than 1 percent a year -- has fallen from two to the dollar in 1981 to more than three to the dollar today.
The reason for the high dollar is evident. A tide of foreign money is sweeping into this country for investment, for safekeeping, for sheer speculation. How long will this tide run? Nobody knows. There's no way to guess. It all depends on foreigners' impressions of the direction of the American economy compared with their own.
If that flow of foreign money should slacken, the effects on prosperity here would be severe. The dollar would fall. Interest rates would rise, because foreigners would no longer be helping to finance the surge of heavy public and private borrowing here. Inflation would rise because imports cost more. That's a recipe for an unpleasant turn in the economy, and financial specialists have been worrying about that possibility.
But now they have begun to worry more about the other possibility -- that the incoming stream of foreign money will continue indefinitely, and the dollar will stay high. The results would be less dramatic but, as they continued, worse for the United States.
If it goes on, the high dollar will do damage to American manufacturing companies on a scale that cannot easily be repaired. Less visibly, it will also commit this country to interest payments on a rising foreign debt. In the past, Americans who defended deficit spending often made the observation that, after all, "we owe the money to ourselves." That will no longer be true. Americans will shortly owe more abroad than they are owed. If the borrowing were to continue on the present level, in a couple of years the interest payments would reach a magnitude that affects the American standard of living.
It's a queer choice. Nobody wants to see a dollar crisis that could drop the country suddenly to a dangerous recession. But without some sort of crisis to force a change in policy and interrupt the growing dependence on foreign borrowing, much greater burdens will gradually develop. Meanwhile, the sale at Harrods proceeds merrily.